1 00:00:00,080 --> 00:00:03,320 Speaker 1: Let's turn to JP Morgan, because after almost a decade, 2 00:00:04,480 --> 00:00:06,920 Speaker 1: a decade after the housing market collapsed around the country, 3 00:00:07,000 --> 00:00:09,680 Speaker 1: the nation's largest banks are still dealing with the fallout, 4 00:00:09,720 --> 00:00:12,399 Speaker 1: and that includes JP Morgan Chase, which is in court 5 00:00:12,480 --> 00:00:15,720 Speaker 1: this week defending against allegation that it's stuffed to investment 6 00:00:15,720 --> 00:00:19,720 Speaker 1: accounts with risky mortgage bonds to insurance companies are seeking 7 00:00:19,720 --> 00:00:23,000 Speaker 1: more than three billion dollars, claiming the bank that bank 8 00:00:23,120 --> 00:00:26,800 Speaker 1: mismanagement caused clients to lose money. A New York State 9 00:00:26,880 --> 00:00:29,400 Speaker 1: judge is now hearing the case with us to talk 10 00:00:29,400 --> 00:00:33,600 Speaker 1: about this is Robert Hockett, professor at Cornell University Law School. Bob, 11 00:00:33,680 --> 00:00:36,280 Speaker 1: thanks for joining us. Can you just give us a 12 00:00:36,320 --> 00:00:41,000 Speaker 1: little bit of the flavor of the allegations in this case? Yeah, 13 00:00:41,080 --> 00:00:44,040 Speaker 1: I mean, so there have been of course you can 14 00:00:44,159 --> 00:00:46,319 Speaker 1: kind of divide. I think most of the litigation that's 15 00:00:46,320 --> 00:00:50,240 Speaker 1: occurred since the house and crashing two families one family 16 00:00:50,240 --> 00:00:52,800 Speaker 1: of cases that have been brought had been brought against UM, 17 00:00:52,960 --> 00:00:56,480 Speaker 1: those involved in securitization process itself. Right, So the claim 18 00:00:56,560 --> 00:00:58,960 Speaker 1: is that the mortgages were the mortgage loans were in 19 00:00:59,040 --> 00:01:03,680 Speaker 1: providently and it UM there was inadequate information given to 20 00:01:03,760 --> 00:01:09,480 Speaker 1: potential investors when particular loans were bundled together into particular 21 00:01:09,720 --> 00:01:14,360 Speaker 1: mortgage backed security UH issuances. UH. And the light that's 22 00:01:14,400 --> 00:01:18,000 Speaker 1: one family. The other family of of cases that have 23 00:01:18,080 --> 00:01:21,600 Speaker 1: been brought have been based on claims that there was 24 00:01:21,640 --> 00:01:26,280 Speaker 1: sort of insufficient due diligence on the part of portfolio 25 00:01:26,360 --> 00:01:30,200 Speaker 1: managers and other managers of investment pools when it came 26 00:01:30,280 --> 00:01:35,840 Speaker 1: to selecting particular mortgage issue concry mortgage backed securities in 27 00:01:35,880 --> 00:01:40,280 Speaker 1: assembling the portfolios. This is one of those kinds of cases. UH. 28 00:01:40,280 --> 00:01:42,880 Speaker 1: And these have received a little bit less attention, maybe 29 00:01:42,880 --> 00:01:44,920 Speaker 1: because it's been it's kind of natural as supposed to 30 00:01:44,920 --> 00:01:49,000 Speaker 1: sort of focus attention on the securitization process itself, on 31 00:01:49,120 --> 00:01:51,720 Speaker 1: the sort of scandals that have plagued or that did 32 00:01:51,760 --> 00:01:55,480 Speaker 1: plague the origination process. But these, these cases that have 33 00:01:55,520 --> 00:01:58,680 Speaker 1: received a bit less attention are are every bit as important. 34 00:01:59,400 --> 00:02:02,960 Speaker 1: Bub Why is this being heard by a judge rather 35 00:02:03,000 --> 00:02:08,280 Speaker 1: than a jury? Um, there's there's any number of reasons 36 00:02:08,280 --> 00:02:10,959 Speaker 1: that would make this possible. I mean, the typical reason 37 00:02:11,040 --> 00:02:14,000 Speaker 1: that's that's given for choosing to have a case heard 38 00:02:14,040 --> 00:02:16,320 Speaker 1: by a judge rather than a jury In a case 39 00:02:16,400 --> 00:02:20,120 Speaker 1: like This is the thought that the typical jury pool 40 00:02:20,760 --> 00:02:24,160 Speaker 1: might not have, you know, sort of adequate technical knowledge 41 00:02:24,280 --> 00:02:29,239 Speaker 1: objectively to evaluate the prudence or otherwise of the particular 42 00:02:29,280 --> 00:02:32,680 Speaker 1: investment selections made by the portfolio managers. I think the 43 00:02:32,760 --> 00:02:34,799 Speaker 1: thought is that, well, maybe the judge will be a 44 00:02:34,840 --> 00:02:37,760 Speaker 1: little bit more just passionate, a little bit less prone 45 00:02:38,480 --> 00:02:44,880 Speaker 1: to succumbing to stereotyps stereotypical images of investment managers and 46 00:02:44,919 --> 00:02:49,480 Speaker 1: the like. Again, I don't I don't know that that's uh, 47 00:02:49,480 --> 00:02:52,240 Speaker 1: sort of a correct perception on the part of those 48 00:02:52,280 --> 00:02:55,560 Speaker 1: who choose to have the cases heard by by judges alone. Um, 49 00:02:55,880 --> 00:02:58,120 Speaker 1: but but it does seem to be out there right 50 00:02:58,120 --> 00:03:00,280 Speaker 1: There seems to be a worry that the typical jury 51 00:03:00,280 --> 00:03:02,720 Speaker 1: pool is going to be sort of biased, partly because 52 00:03:03,000 --> 00:03:06,079 Speaker 1: they don't really understand what's going on in these cases, uh, 53 00:03:06,080 --> 00:03:08,680 Speaker 1: and that they're going to have sort of stereotypes of 54 00:03:08,680 --> 00:03:11,440 Speaker 1: of sort of uh nasty, sort of Wall Street investment 55 00:03:11,440 --> 00:03:13,680 Speaker 1: manager type since they're gonna be biased against them that 56 00:03:13,800 --> 00:03:15,880 Speaker 1: kind of thing. Again, that that seems to be the 57 00:03:15,880 --> 00:03:19,480 Speaker 1: typical concern to those who seek trial by judge. Dryth 58 00:03:19,520 --> 00:03:21,639 Speaker 1: and jury in a case like this probably only have 59 00:03:21,680 --> 00:03:24,000 Speaker 1: about four or five seconds. But I understand that the 60 00:03:24,000 --> 00:03:26,480 Speaker 1: insurance in this case get damages only if they show JP. 61 00:03:26,639 --> 00:03:30,000 Speaker 1: Morgan was grossly negligent. That's a contract term. Is that 62 00:03:30,080 --> 00:03:32,480 Speaker 1: a standard contract term? And and how hard is that 63 00:03:33,080 --> 00:03:36,120 Speaker 1: of a test to meet? Well? It is a standard 64 00:03:36,200 --> 00:03:38,920 Speaker 1: contract term. Uh. And it's designed to make it a 65 00:03:38,960 --> 00:03:41,840 Speaker 1: little bit more difficult, of course, to get a defendence 66 00:03:41,840 --> 00:03:43,440 Speaker 1: on the hook, right, you had to show not only 67 00:03:43,440 --> 00:03:44,960 Speaker 1: that they were a bit careless, but that they were 68 00:03:45,560 --> 00:03:49,960 Speaker 1: grossly careless, that they were almost borderline reckless. Um. That 69 00:03:50,040 --> 00:03:51,840 Speaker 1: does make it look a bit harder to win a 70 00:03:51,880 --> 00:03:53,480 Speaker 1: case like this if you're a plaintiff, But it doesn't 71 00:03:53,480 --> 00:03:56,080 Speaker 1: make it impossible. Uh. And Indeed, the more it regious 72 00:03:56,080 --> 00:03:59,160 Speaker 1: the case, and the more the more frequent, uh, I mean, 73 00:03:59,200 --> 00:04:02,280 Speaker 1: the greater number of such cases brought, the more apt 74 00:04:02,320 --> 00:04:04,880 Speaker 1: the judges become the sort of crackdown and say, all right, 75 00:04:04,960 --> 00:04:07,640 Speaker 1: we'll find those negligence here. Okay. I want to thank 76 00:04:07,720 --> 00:04:10,640 Speaker 1: Robert Hockett, professor at Cornell University Law School, for joining 77 00:04:10,720 --> 00:04:11,839 Speaker 1: us here on Bloomberg Law.